IPOs likely in fintech sector, M&As yet to see traction: Elevation Capital

Elevation Capital partner Mridul Arora
Elevation Capital partner Mridul Arora


  • I don’t think fintech M&A has seen a lot of traction yet. It’s very hard for me to say when will it be, Arora said

New Delhi: Elevation Capital, which has invested in fintech companies such as Paytm, Acko, Swiggy and Mintifi, is increasing its focus on the sector." In an interview, Elevation Capital partner Mridul Arora spoke about his fintech portfolio and upcoming IPOs, besides sharing Elevation’s overall fintech investment strategy. Edited excerpts:

Have you identified any new fintech investment?

We are kind of done for this year. As a focused investor, we do usually 2-3 investments across sectors in a year, but it’s not a hard cap. Historically, we have deployed $2 billion in India. Of that, one-fourth or even more is fintech or financial services only. And I think that proportion will only increase.

Also, we are not taking a sector approach and have laid out 10 themes. Horizontal platforms have done great so far, but now, vertical platforms will be a focus area. Second bet is the affluent market and third is infra. Today, Indians are getting richer, they are going more digital and plumbing is getting better with account aggregator, KYC and more. I think the time is right.

Given that there has been some dud fintech IPOs, do you expect companies going for IPOs?

I think everyone’s getting ready. All of this follows a cycle. so, obviously after 2021, it has been slow. But what companies have been doing meanwhile is becoming more efficient. One thing is very clear, the Indian capital markets value growth, but they also disproportionately value being profitable.

You take a ballpark guess on how many companies in India, tech companies in India are close to being profitable or will become profitable? And our guess tells us, there are at least 25-30 across the ecosystem. My personal bet would be that in the next 3-5 years, at least 25-30 companies will get listed. And most of them will be profitable.

Do you see any M&A likely among your portfolio companies as many compete?

We are not exploring any. In a lending company, I find M&As will be hard. When you go to buy a lending company, you never know what you are getting into. No one will pay you top dollar, unless it’s a very special asset.

Honestly speaking, I don’t think fintech M&A has seen a lot of traction yet. It’s very hard for me to say when will it be.

In Elevation portfolio, which companies are expected to do IPO?

Bunch of them. We have Swiggy very committed to an IPO, but again, I can’t predict aa timeline. We have Urban Company, Ixigo, FirstCry, Xpressbees, Aye Finance, Mintifi.

How are some of your fintech lending investments like Axio (Capital Float), Aye Finance, Mintifi doing?

Axio is doing pretty well and last quarter, they turned profitable. Mintifi is massively profitable. Aye Finance is doing extremely well.

About 80% of Axio’s business comes from Amazon, who is also an investor in it. So, it’s a safe partner. Still, does one customer or one partner business makes sense? Do you see strategic synergies between Amazon and Axio, where it might get acquired one day by the ecommerce giant as it is going big on lending?

No one will say logically one partner concentration is great. I think there are 2-3 aspects to this – one is who that partner is and how fast that partner is growing.

In terms of acquisition, Amazon is not a lender and is a marketplace platform. And, when it comes to Axio, the size and scale they are at now and if you look at 2-3 years view, it will be a very sizeable company to independently list.

Name one investment you are proud of.


Does Paytm’s shareholding concern you as an investor? Being single largest individual shareholder in the company, Vijay Shekhar Sharma still doesn’t take a promoter tag. What is your comment on this?

I don’t know about the promoter tag bit. But you have to separate two things – one is share price and what’s happening in the capital.

As Warren Buffett says, in the short run, the market is a voting machine but in the long run, it is a weighing machine. So, the only thing you can track and have in your control is business performance. Business performance over the last few quarters truly, finally, you are seeing that Paytm has built an ecosystem of hundreds of millions of customers, tens of millions of merchants, all of them engage and use the app for payments. Payments is a wedge product. But on top of that, on lending, if you look at the traction they have and what that means for cash flows and operating profit and then, more financial products on top of it. The magic of the platform and the operating leverage in the platform is now coming. So, I feel next five years are going to be better than the past five years.

We are seeing Paytm’s significant investors like Ant Financials and Alibaba exiting through different arrangements. This could be due to regulatory concerns. As a major investor, how you see such developments?

Our view is we have a view on the business and the promoter and as long as the view on the entrepreneur and the business is strong and bullish, all of these things have a way to resolve themselves over time. We go to business operating metrics and I think the business has never been in a better shape. It only keeps getting better.

Paytm competes with Amazon on one side; then you have another portfolio company Axio fuelling lending ambitions of Amazon. Do such scenarios create any kind of conflict?

You have to believe in some sense that TAM (total addressable market) is large enough, and second, of all the revenue pools in the market, financial services has been a revenue pool that has never been a winner-takes-all. Everyone has a different product and everyone has different business model. I think they can all co-exist. By the way, Paytm today, given the number of product lines they have, competes with everyone in my portfolio – which is fine.

Paytm is a listed company. To our mind, that’s an enduring company, which we invested in very early. We are super proud of it.

What kind of returns have you made out of Paytm?

We have sold some shares, but we still have significant stake in Paytm. We don’t disclose exact numbers, but Paytm has been a great investment.

As a fund, you are in no pressure of returning money back to investors?

Yes. But we keep reviewing portfolio. I would say Elevation probably has one of the best track records when it comes to returning money to its investors. Therefore, at a portfolio level, we review every situation and there, you find the opportunity to do it, but never will it be at the cost of companies’ benefit and never will it be from a position of desperation or hurry. We will always be a patient long-term investor finding the right time and doing the right thing.

Any one from your portfolio which did not turn up as per your expectations? What do you think of Coverfox?

We would like to believe that we get all of them right, but we don’t. Yes, Coverfox was one. Policybazaar was the leader and the gap between the two was too high. And, then when you build a consumer distribution platform, the customer acquisition cost (CACs) is high. Fundamentally as a distributor doing product innovation is hard. But the big realization we had then was it is important to go full-stack because that’s only when you deliver full value to customers. You will really innovate on products and you will own the customer. And those were the realizations only led us to become a manufacturer – and Acko is the result.

You don’t see Acko going for an IPO in 2-3 years?

When we invested in Acko, I did an analysis to see how much time does it take to reach $100 million of premium. And on average, companies in the past have taken seven years and these companies are bank sponsors and bank distributors. Acko took three and half years to achieve that kind of premium. If you launch a product which has value for customers, roughly, Acko will do anywhere upwards of $200 million premium coming. That scale is meaningful. Now at that scale, when we are still at low single digit market share. There is no reason why we would not be a $500 million premium or a billion dollar premium company in 5-7 years. And at that scale, it’s a very valuable asset.

At the current scale, don’t you think Acko is ready for an IPO?

No. We will take time. I would not put them in the within two to three-year window, but I would put them in the three to five year window.

Back-to-back digital lending guidelines impacted companies like Uni the most. How do you see Uni as an investment, are they back on track?

Regulations will always play a little bit of catch up and then startups will have to catch up. That will require re-orchestrating. While their card programme is coming back on track, Uni has created a personal loan. Overall, I feel very positive.

In India today, the financial services is $220 billion revenue; fintech at the optimistic estimate is 3-4% of that. We estimate that fintech in itself will be $70 billion revenue by 2030. Today, we are at $60-80 billion market cap in all fintech companies, including listed and unlisted. And, 5-6x growth in market cap is what makes this sector most exciting. Our job is to get a meaningful market share of this $400 billion. As long as underlying tailwinds exists, business models will always be finding their ways to adjust, whether it’s to regulation, whether it’s to customer, whether it’s to credit cycle. But that long march I feel is still very very strong.

One investment that you regret missing?

I hugely regret M2P and Razorpay.

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